Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate India
Risk to growth; reinstate at
Underperform
Reinstate coverage at Underperform with a PO of Rs905
We reinstate Colgate India, a 51% subsidiary of Colgate-Palmolive Co., USA, at
U/P led by rich valuation and risk to earnings. Colgate leads the Indian oral care
market with 47% share. PO of Rs905 is validated by DCF and implies a target 22x
one-year fwd PE. At PO Colgate will trade at 20% discount to target multiple for
Hindustan Unilever - justified given Colgate’s low diversification and less growth.
Leader in oral care; expect about 16% revenue growth…
Oral care is a Rs47bn opportunity in India with an estimated CAGR of over 10% in
the medium term. Colgate leads in this category and has seen market share rise
by 700bp since 2006 to 47% currently led by i) strong brand/product portfolio, ii)
consistent A&P support and iii) robust distribution. This should drive a 16%
revenue CAGR over FY11-13 led by ~10% estimated volume growth.
…but margins can be pressured; downside risk to earnings
However, oral care is likely to see higher competition as HUL, P&G etc eye
market share gains. This can pressure margins in the medium term. While we
bake in 45bp margin decline over FY11-13 led by this, see another 100bp down
side risk in case of a severe competition that can lead to i) higher A&P and ii) less
room to increase prices in budget conscious/ monsoon dependent rural markets.
Any correction in RM cost is likely to be passed on to the consumer.
Expensive valuations, multiple can de-rate
Post a 41% outperformance in CY11 given defensive nature, Colgate trades at
27x 1-year forward PE - about 20% premium vs 5-year historical average. These
are expensive valuations given i) possibility of lower growth vs historic and ii)
higher risk to margins. Expect multiple to de-rate to a historical avg of 22x. Key
risks: i) stronger-than-expected rural growth and ii) lower competitive intensity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Colgate India
Risk to growth; reinstate at
Underperform
Reinstate coverage at Underperform with a PO of Rs905
We reinstate Colgate India, a 51% subsidiary of Colgate-Palmolive Co., USA, at
U/P led by rich valuation and risk to earnings. Colgate leads the Indian oral care
market with 47% share. PO of Rs905 is validated by DCF and implies a target 22x
one-year fwd PE. At PO Colgate will trade at 20% discount to target multiple for
Hindustan Unilever - justified given Colgate’s low diversification and less growth.
Leader in oral care; expect about 16% revenue growth…
Oral care is a Rs47bn opportunity in India with an estimated CAGR of over 10% in
the medium term. Colgate leads in this category and has seen market share rise
by 700bp since 2006 to 47% currently led by i) strong brand/product portfolio, ii)
consistent A&P support and iii) robust distribution. This should drive a 16%
revenue CAGR over FY11-13 led by ~10% estimated volume growth.
…but margins can be pressured; downside risk to earnings
However, oral care is likely to see higher competition as HUL, P&G etc eye
market share gains. This can pressure margins in the medium term. While we
bake in 45bp margin decline over FY11-13 led by this, see another 100bp down
side risk in case of a severe competition that can lead to i) higher A&P and ii) less
room to increase prices in budget conscious/ monsoon dependent rural markets.
Any correction in RM cost is likely to be passed on to the consumer.
Expensive valuations, multiple can de-rate
Post a 41% outperformance in CY11 given defensive nature, Colgate trades at
27x 1-year forward PE - about 20% premium vs 5-year historical average. These
are expensive valuations given i) possibility of lower growth vs historic and ii)
higher risk to margins. Expect multiple to de-rate to a historical avg of 22x. Key
risks: i) stronger-than-expected rural growth and ii) lower competitive intensity.
No comments:
Post a Comment